Operations Management / Supply Chain Management

Module 05.01 Key Concepts: Continuous Improvement Approaches

In the previous section we took a high-level look at the importance of Quality Management in an Organization and noted some of the different approaches.  In the Section we will expand this topic in more detail by taking a look at each of the leading processes.

The Malcolm Baldrige National Quality Award was established in 1988 by the U.S. government.  It is designed to promote TQM practices. Recent winners include: Lockheed Martin Missiles and Fire Control, MESA Products Inc., North Mississippi Health Services, City of Irving, Concordia Publishing House, Henry Ford Health System, MEDRAD, Nestlé Purina PetCare Co., Montgomery County Public Schools.  So, you can definitely see the broad applicability of the approach.  The Baldrige Criteria, which actually frame the elements of the overall process.

ISO 9000 represents a group of international standards that provide global recognition.  If a company has achieved ISO 9000 Certification this often provides a competitive advantage and if a company does not have it then this can represent a barrier to entry.   ISO 9000 encourages quality management procedures, detailed documentation, work instructions, and record keeping.  There is a mantra “Say what you do and do what you Say” that is often stated in relationship to the ISO 900 framework.  A 2009 revision emphasized sustained success.  There have been over one million certifications in 178 countries and the process is considered critical for global business.

As with the Malcolm Baldrige National Quality Award, ISO 9000 includes several different elements / Management Principles:

  • Top management leadership
  • Customer satisfaction
  • Continual improvement
  • Involvement of people
  • Process analysis
  • Use of data-driven decision making
  • A systems approach to management
  • Mutually beneficial supplier relationship

Do you notice some similarity?

In the first section we noted some of the key leaders in the development of quality principles and approaches.  Details are presented in the text.

Philip Crosby introduced a very important concept called the Cost of Quality.  In general, this includes several different categories of cost:

  • Prevention costs – reducing the potential for defects
  • Appraisal costs – evaluating products, parts, and services
  • Internal failure costs – producing defective parts or service before delivery
  • External failure costs – defects discovered  after delivery

The overall thinking is that if an organization invests $$ in “Prevention” that the costs of “Appraisal”, “Internal Failures” and “External Failures” will decrease dramatically with a net positive financial impact on the company.

Total Quality Management in fact reaches well beyond products and services into the realm of Ethics and Sustainability.   Operations managers must deliver healthy, safe, quality products and services.  At the same time, this is expected to minimize / mitigate poor quality risks injuries, lawsuits, recalls, and regulation. Ethical conduct must dictate a proper response to problems that are uncovered and the interests of all stakeholders much be considered.

Therefore, Quality Management encompasses the entire organization from supplier to customer.  It stresses a commitment by management to have a continuing company-wide drive toward excellence in all aspects of products and services that are important to the customer.

Like Philip Crosby, W. Edwards Deming was a leader in quality management process development with a focus on “System” thinking.  He institutionalized the use of Statistical Methods that we will cover later.  Deming’s approach to continuous improvement is framed by his “Fourteen Points.  You will note that many of these are Organizational / Cultural in nature and definitely highlight the importance of excellence in leadership.

Quality Management implies a never-ending process of continual improvement.  It covers people, equipment, materials, and procedures.  The general thinking is that, in reality, there are opportunities fro improvement in each and every operation in an organization.  A Japanese approach called “Kaizen” describes the ongoing process of unending improvement.  Total Quality Management and Crosby’s “Zero Defects” are also used to describe continuous improvement.   The continuity of regular improvement, monitoring and corrective action are framed by Shewhart’s Plan > Do > Check > Act (PDCA) cycle.  This actually is the basis for all of the Planning Process we use in Supply Chain Management from Strategic Planning to Detailed Scheduling.
Six Sigma is a formalized approach to drive significant quality / business process improvement.  It utilizes the PDCA cycle and statistical tools and emphasizes reduction in  defects per million opportunities as a standard metric.

Six Sigma basically carries two meanings:

  • Statistical definition of a process that is 99.9997% capable, 3.4 defects per million opportunities (DPMO)
  • A program designed to reduce defects, lower costs, save time, and improve customer satisfaction

It was originally developed by Motorola and then adopted and enhanced by Honeywell and GE  It represents a highly structured approach to process improvement and includes an overall strategy coupled with a disciplined 5 Step Process and set of 7 Continuous Improvement tools.  The Process Steps are detailed below and examples of Quality Tolls will be provided in the following Section.

  • Defines the project’s purpose, scope, and outputs, identifies the required process information keeping in mind the customer’s definition of quality
  • Measures the process and collects data
  • Analyzes the data ensuring repeatability and reproducibility
  • Improves by modifying or redesigning existing processes and procedures
  • Controls the new process to make sure performance levels are maintained

The Six Sigma process requires extensive training and corporate sponsor support (Champions).  As part of the organization of projects, this includes definition / creation of qualified process improvement experts (Black Belts, Green Belts, etc.).  Six Sigma Projects are high profile and drive towards stretch objectives.  Success cannot be accomplished without significant commitment from top level management.

Thus, Six Sigma is a comprehensive system for achieving and sustaining business success.

Any Quality Management / Continuous improvement approach requires people and thus Employee Involvement is essential.  Employee Empowerment relates to getting employees involved in product and process improvements.  The Text  Authors highlight that approximately 85% of quality problems are due defective / poorly performing process and material -= not people.  Actually, the people that are involved in the processes are generally best equipped to identify and implement improvements.  Employee Involvement can be enhanced by:

  • Building communication networks that include employees
  • Developing open, supportive supervisors
  • Moving responsibility to employees
  • Building a high-morale organization
  • Creating formal team structures

A Quality Circle a formalized structure to encourage employee involvement and foster empowerment.   Quality Circles are represented by a group of employees who meet regularly to solve problems.  They are well trained in planning, problem solving, and statistical methods and are often led by a facilitator.  Quality Circles can be very effective when implemented and facilitated properly.

A key component of any improvement effort is to study other approaches and see if there are ideas / processes / systems that can be “borrowed” from other functions and / or companies.  This is referred to as Benchmarking.  Benchmarking of products and services is quite common.  Companies want to see what the competition is doing and then identify appropriate actions.  On the other hand, process benchmarking can be even more valuable.  Process benchmarking can occur between internal functions and virtually any outside organization – extending to best in class – regardless of industry.  Internal benchmarking is useful when the organization is large enough.  In this case, data is generally more accessible and the process can and should be established in a variety of different functional areas.

Benchmarking is best done within a formal process utilizing the following steps:

  • Determine what to benchmark
  • Form a benchmark team
  • Identify benchmarking partners
  • Collect and analyze benchmarking information
  • Take action to match or exceed the benchmark

Just in Time (Lean) is defined by APICS as: “A philosophy of production that emphasizes the minimization of the amount of all resources (including time) used in the various activities of the enterprise.”  In relationship to Quality, Just In Time approaches tend to improve overall quality and thus cut the Cost of Quality.    In both manufacturing and services, better quality means less inventory, and better / easier-to-employ Just In Time Systems.  Just In Time processes usually employ a Pull’ system of scheduling that includes supply management.  In this way, Production only when signaled by a following operation.  This allows reduced inventory levels.  Inventory costs money and hides process and material problems.  Just In Time thus encourages improved process and product quality.

Taguchi Concepts are another Japanese creation.   Taguchi Concepts provide engineering and experimental design methods to improve product and process design.  As such, key component and process variables are identified that affect product variation.  There are three basic Taguchi Concepts:

  • Quality robustness
  • Quality loss function
  • Target-oriented quality

Quality Robustness concerns the ability to produce products uniformly in adverse manufacturing and environmental conditions.  This means the remove the effects of adverse conditions and assurance that small variations in materials and process do not destroy product quality.

The Quality Loss Function is a graphical representation that shows costs increase as the product moves away from what the customer wants.  Potential costs include customer dissatisfaction, warranty and service, internal scrap and repair, and costs to society. Traditional conformance specifications are considered to be too simplistic.

Target Oriented Quality drives fro reduced variation in processes so that defects and all related costs are minimized.